What Will Hyperinflation in the U.S. Look Like?
Posted By Dr. Mercola | November 06 2010
In this audio interview, John Embry, chief investment strategist for Sprott Asset Management, tells King World News why he believes hyperinflation is a certainty.
Blogger Gonzalo Lira has also published a disturbing piece detailing what the effects of hyperinflation in the U.S. would be.
He used as an example one of the modern instances of hyperinflation -- Chile under the government of Salvador Allende.
The currency became worthless, and when consumer goods ran out and were rationed, people perceived as unfriendly to the government received insufficient rations or none at all.
A black market soon arose, which accepted only foreign currency. The economy collapsed completely as people cashed out their assets to buy basic goods and staples on the black market.
In the U.S., the blog predicts a slightly different path to the same destination:
"If Treasuries tank ... then prices will rise for regular consumers ... [I]f the higher consumer prices continue -- or become worse ... They'll start buying more gas now, rather than wait around for tomorrow ... Prices of commodities will rise even further ... once the American economy gets there, the effects of hyperinflation will be exactly the same [as they were in Chile]."
Already, signs of hyperinflation are evident. As Lira writes, he is confident this will occur even if a panic in Treasuries does not occur:
"I am no longer certain if there will ever be such a panic in Treasuries … But that doesn't mean that the second part of my thesis—commodities rising, which will trigger inflation, which will devolve into hyperinflation—will not occur.
In fact, it is occurring.
The two key commodities that have been rising as of late are oil and grains, specifically wheat, corn and livestock feed.
… Grains as a class have risen over 33% year-over-year. Refined oil products have risen just shy of 13%, with home heating oil rising 18% year-over-year. In other words: Food, gasoline and heating oil have risen by double digits since 2009."
Further, according to the 2010 Legatum Prosperity Index, the United States ranks only 10th overall in an assessment of wealth and well-being, behind Norway, Denmark, Finland, Australia, New Zealand and five others, and only 14th in measures of economy.
Dr. Mercola's Comments:
Today, the Federal Reserve has more power over the economy than any other single institution in the United States. It is the Fed that primarily determines if we will see high inflation or low inflation, whether the money supply with expand or contract and whether we will have high interest rates or low interest rates. The President and the U.S. Congress have far less power to influence the economy than the Federal Reserve does.
So how has the Federal Reserve performed over the years?
The Federal Reserve has been around for 100 years and in that time the U.S. government debt has increased exponentially and the U.S. dollar has lost over 96 percent of its value.It is no mystery that the US is headed for some serious problems as result of the Federal Reserve printing trillions of dollars out of thin air. You just simply create something out of nothing, and eventually there will be some type of reconciliation to balance the books.
They did it earlier this week. The US Federal Reserve board created another $900 billion dollars out of thin air to purchase stocks and bonds in Quantitative Easing 2. This boosted the stock market to a two year high and the US papers promoted this was great and implied that the US was recovering from the depression despite the US dollar crashing.
However the UK papers had a different headline:
You can also read the NPR take on this in their article The Fed's $800 Billion Statement Translated into Plain English The gold and silver markets reacted appropriately and had massive gains.
There is great debate among many experts in this area who present strong and rational arguments for a case of inflation or deflation or even both.
This article is not at all meant to imply that I believe the US is headed for hyperinflation; it is just one possibility. I did feel that it would be interesting to read what some people felt that might look like.
The author of the above article paints a particularly dire picture of the events that could follow such an event, which he believes will be triggered by a sudden collapse in the Treasury bond market, eventually leading to a "new normal" that could involve autocratic or totalitarian government.
"What I do know is, One, a hyperinflationary event will happen, following the crash in Treasuries. Two, commodities will be the go-to medium for value storage. Three, all asset classes will collapse in short order. And Four—and most importantly—civil society will not collapse along with the dollar. Civil society will stumble about like a drunken sailor, but eventually right itself and carry on with a new normal."
The element that struck me most from the article was that if this scenario does occur it is not the end of the world and eventually the economy will come back into some sort of balance.
Whether his specific predictions come true remains to be seen (you can read Lira's economic predictions in their entirety here), but he is certainly not alone in his sentiment that hyperinflation is coming to the United States.
"Meltup," a documentary released by the National Inflation Association, also explains in no uncertain terms that the U.S. economy is teetering on the edge of a currency crisis that will lead to hyperinflation.
And in an interview with King World News, John Embry, chief investment strategist for Sprott Asset Management, also believes hyperinflation is a certainty:
"I'm another person that worries hugely about hyperinflation, I mean the monetary path that they appear to be following, I guarantee you will lead to hyperinflation," he said.
Is Hyperinflation Inevitable?
As its name suggests, hyperinflation is inflation that is out of control, generally at a rate greater than 50 percent a month. What this means, according to the Library of Economics and Liberty, is that a cup of coffee or newspaper or any item that cost you $1 on January 1 would cost you $130 one year later.
How does this happen? The Library of Economics and Liberty explains it quite simply:
"Hyperinflations are caused by extremely rapid growth in the supply of "paper" money. They occur when the monetary and fiscal authorities of a nation regularly issue large quantities of money to pay for a large stream of government expenditures.
In effect, inflation is a form of taxation in which the government gains at the expense of those who hold money while its value is declining. Hyperinflations are very large taxation schemes."
Is the U.S. Dollar Nearing Collapse?
Since the US is off of the gold standard, the U.S. dollar is being devalued at record pace. Where the value of U.S. currency was once backed by gold, today it is literally created out of thin air. In my past article on surviving in today's economy, Jim Ehmke, whom I consider an expert in understanding how this system works, stated:
"Until 1971, the world of paper assets and currency was balanced with the gold standard. Gold provided a physical storehouse of wealth that was used to balance trade deficits and prevent unlimited printing of paper money.
Gold established and maintained economic discipline and balance. The use of gold in this fashion was agreed to by all the major countries in what is known as the Bretton Woods Accord.
But when President Nixon dissolved Bretton Woods, the modern world was thrown into uncharted waters; without the discipline of the gold standard, a new era of unlimited money creation was ushered in. Over decades, this eventually spawned an economy based overwhelmingly on debt, deficits, inflation, currency manipulation and unimaginable (at least to most of us) instruments called derivatives.
And now this house of cards is crashing and the economic worst-case scenario, for which few have prepared, is upon us."
Embry also told King World News:
"What it's really going to collapse against is hard assets...I really don't think people have any idea the extent to which the standard of living can fall in North America, particularly in the United States. I mean when a currency collapses against everything else, basically that is saying that the standard of living is going to fall.
In fact, it could fall by 30, 40 or 50% just to pick some wild numbers, is not out of the question. Things have been pretty good for the last 60, 70 years in North America, and they think they'll be good forever. It isn't going to happen that way."
Lira also pointed to what he called a coming "imminent currency collapse" in his October 28 blog, noting the following points for reasoning:
- "Rising commodity prices, the effects of which (because of hedging) will be felt most severely in the period January–March of 2011.
- A beggar-thy-neighbor race-to-the-bottom Currency War, that might well devolve into a Trade War, which would force up prices on imported goods.
- A Federal Reserve that does not seem to know what it is doing, as regards another round of Quantitative Easing, which is making the financial markets very nervous—nervous about the Fed's ultimate responsibility, which is safeguarding the U.S. dollar.
- A U.S. economy that is weak to the point of collapse, where not even 0.25% interest rates are sparking investment and growth—and which therefore prohibits the Fed from raising interest rates, if need be.
- A U.S. fiscal deficit which is close to 10% of GDP annually, and which is therefore unsustainable—especially considering that the total U.S. fiscal debt is well over 100% of GDP.
These factors all point to one and the same thing:
An imminent currency collapse."
He then goes even further in predicting the following sequences of events to follow:
- "By March of 2011, once higher commodity prices reach the marketplace, monthly CPI [Consumer Price Index] will be at an annualized rate of not less than 5%.
- By July of 2011, annualized CPI will be no less than 8% annualized.
- By October of 2011, annualized CPI will have crossed 10%.
- By March of 2012, annualized CPI will cross the hyperinflationary tipping point of 15%."
Lessons From Around the Globe
I got a thought-provoking glimpse of what the reality might be like if the Federal Reserve does not stop this insanity when I read an article about the hyperinflation of Zimbabwe, which reached a rate of 231 million percent in 2008.
What caused this out of control inflation?
Zimbabwe's government went bankrupt, and in an effort to stay afloat they keep printing ever more money. This destroys the Zimbabwe dollar's value in terms of hard currency, sending the cost of goods, especially anything imported, soaring.
For the population, days are spent standing in line at the bank to make the daily maximum withdrawal, just to get by for the day.
The United States is Not in the Top 10 Economies Worldwide
Many are still under the impression that the United States is an economic superpower, but according to the Legatum Institute's 2010 Prosperity Index, the U.S. economy ranks only 14th worldwide. The Index states:
"The United States has a relatively stable economy with low inflation, ranking the country 15th on this variable. However, it also has a very low level of gross domestic savings, which rose in the aftermath of the recession … confidence in financial institutions was very low in 2009, ranking the United States 86th on this variable."
In terms of overall prosperity, wealth and well-being, the United States still ranked only 10th on the list, behind Canada, Sweden, New Zealand, the Netherlands and others.
What to Do if Hyperinflation Hits …
As inflation drives up prices and devalues the dollar, Americans will no longer be able to depend on cheap imports from China, and that includes not only consumer goods but also food.
One of the major solutions to the impending currency crisis, hyperinflation, food shortages and all of the potential related financial hardships is to return back to our roots as a country. This means supporting the small "mom and pop" shops that get their goods from local suppliers, buying your food from a small local farm, and valuing quality USA-made goods and foods over those that came cheaply from overseas.
Now, this newsletter is clearly about health, but when I have surveyed readers in the past about their primary obstacle to achieving health, the leading answer was always 'not having enough money to have a healthy lifestyle.'
If events play out as some experts predict, the US economy will face some serious challenges and if you aren't prepared for this, you and your family may not have enough resources to even purchase quality food to stay healthy.
There are compelling reasons why you will want to consider taking some proactive safety measures against the clear and coming massive destruction of the dollar and possible hyperinflation. Many experts believe a reasonable approach would be to have three months of your income in gold and silver coins in your physical possession. Merely holding gold or silver stocks simply won't cut it.
You do have to act quickly though as prices are starting to rapidly climb. Producer costs for essential commodities such as grain and cotton are skyrocketing, and those increased costs will soon appear on store shelves. Also metal prices like silver are at 30 year highs and went up $2.50 an ounce on Thursday, and gold jumped nearly $50 to approach $1400. Many experts are predicting $30 silver and $1600 gold in the not too distant future.
Free Books that Will Reveal More Information
By far the most secret and least accountable operation of the US government is not, as one might expect, the CIA, FBI or some other super-secret intelligence agency. The CIA and other intelligence operations are under control of the Congress. They are accountable: a Congressional committee supervises these operations, controls their budgets, and is informed of their covert activities
It is little known, however, that there is a federal agency that tops the others in secrecy by a country mile. The Federal Reserve System is accountable to no one; it has no budget; it is subject to no audit; and no Congressional committee knows of, or can truly supervise, its operations.
In the last few years they have created trillions of dollars out of thin air.
The Ludwig von Mises Institute has made the following two books by Murray Rothbard available to you at no charge and they go into far more details about the pernicious nature of the US Federal Reserve.
If you have any interest in this area these books are HIGHLY recommended:
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